The financial planning industry's worst nightmare is about to come true with the Ripoll Report recommending advisers become fiduciaries, payments from product providers to planners should cease and that ASIC significantly step up its shadow shopping and adviser policing activities.

Bernie Ripoll, chair of the Parliamentary Joint Committee on Corporations and Financial Services, handed down his Committee's 246 page report into financial products and services last night that was established following a string of financial collapses that left thousands of consumers billions of dollars out of pocket.

The widespread nature of its recommendations mean the government is likely to take several months to fully respond to the report, especially as its findings will have to be integrated with the outcome of the Cooper Review report that is due mid-2010.

The report's most profound recommendation is for advisers to assume fiduciary responsibility and expanded duty of care provisions to act in their clients best interests. Indeed the Inquiry expressed dismay that advisers did not already have this requirement.

"There is no reason why advisers should not be required to meet this professional standard, nor is there any justification for the current arrangement whereby advisers can provide advice not in their clients' best interests, yet comply with section 945A of the Corporations Act. A legislative fiduciary duty would address this deficiency," noted the Report.

The recommendation is so significant that one leading law firm, Townsends Business and Corporate Lawyers, said "[it] will effectively change the onus of proof in claims against advisers and make it easier for clients to make claims".

While the Report did not recommend a banning of sales commissions, the Committee didn't need to as fiduciary responsibility is highly likely - as highlighted by Joe Hockey shadow treasurer in his speech to the FPA conference last week - to be incompatible with such remuneration models.

The implications for insurance specialist advisers as well as investment advisers could be significant. It is also expected to significantly weaken the hold dealer groups have on their aligned advisers who will be required to assume their fiduciary responsibilities individually rather than through outsourced arrangements.

"The committee notes that remuneration structures that are incompatible with a financial adviser‘s proposed fiduciary duty (Recommendation 1) should be removed. The committee acknowledges that some in the industry have already indicated a willingness to move away from commission-based remuneration practices. The committee welcomes this and recommends that government consult with and support industry in effecting this transition," noted the Report.

To police this much tougher professional standard, the Report recommended ASIC significantly lift its adviser policing activities through expanded shadow shopping programs and that adviser education standards be raised and monitored through the establishment of a professional standards board.

The Report in this regard was highly critical of the regulator for not being pro-active enough.

"The committee is firmly of the opinion that ASIC needs to undertake the enforcement of legislative standards of advice with a more rigorous and targeted approach. ASIC should perform effective risk-based surveillance on the advice provided by licensees and their authorised representatives, focusing particularly on licensees that have come to the attention of the regulator previously," noted the Report.

However in good news for the regulator, the Report acknowledged ASIC is likely to need additional funding to fulfill this for more complex and onerous role.